I really like the concept of giving p elements a bottom margin. This is especially useful in WordPress, which strips away extra line spaces away from comments and posts. By giving a generous bottom margin to p elements, you don't really miss being able to add extra line spaces.

I didn't mean to jump off topic here, just thought it was worth noting the inherited font-size issue in nested elements. There are also issues with vertical rythm when dealing with nested elements. As long as you have full control over the HTML it shouldn't be a problem. But when dealing with content management systems for clients, you'd have to make sure it looks good whatever tags the prefer to use (as long as it's valid!)

David, nested lists are appropriate in many cases (my comment on reconsidering markup structures was only regarding the block-level elements nested inside paragraphs and/or definition terms).
The original topic is more about how to handle vertical space in body text (the primary area of a page). Nested lists are mostly used for various navigational and supplementary elements.
Actually, when developing web sites I use more specific selectors, for instance #main_content li and set rules for navigation and other supplementary content with their specific selectors.

David, thanks for your remark.
Placing a block-level element inside definition term or paragraph is a symptom for a developer that she should probably reconsider the HTML structure.
In real life scenario I’d add something like:
dd *, li * { font-size: 1em; } as a default rule and override it later on if neccessary (I guess that one doesn’t place block-level elements inside dd or li very often).

li, dt, dd, p { font-size: 1.2em; } will be a problem if you put block-level elements inside another block-level element. Font-sizes are inherited by default, and 1.2em means basically 120%. Try putting a paragraph inside a list item, or simply a nested list and you'll see it grow out of proportion.
I prefer setting the font-size higher in the document tree, f.ex in #content.

A simple example of what your CSS actually does would be greatly appreciated. Of course, we can do it ourselves, but everybody got used to seeing "Example 1" hyperlink to view the results of particular code.